Ocean Sparkle Limited, Hyderabad V. DCIT, Hyderabad

ITA 1457/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59208 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 25-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA SINHA
• Assessee Lawyers: T S AJAY
• Section: 143(3); 115JB; 80IB; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER NO. 523/HYD/2010 ASSESSMENT YEAR - 2005-06 THE DY. CIT CIRCLE-16(3) HYDERABAD VS M/S. OCEAN SPARKLES LTD. HYDERABAD PAN: AAACO2519H (APPELLANT) (RESPONDENT) NO. 1457/HYD/2010 ASSESSMENT YEAR - 2005-06 M/S . OCEAN SPARKLES LTD., HYDERABAD PAN AAACO2519H VS THE DY. CIT CIRCLE-16(3) HYDERABAD (APPELLANT) (RESPONDENT) NO. 899/HYD/2010 ASSESSMENT YEAR - 2006-07 NO. 1336/HYD/2010 ASSESSMENT YEAR - 2007-08 THE A CIT CIRCLE-16(3), HYDERABAD VS M/S . OCEAN SPARKLES LTD., HYDERABAD PAN AAACO2519H (APPELLANT) (RESPONDENT) REVENUE BY: SMT. VASUNDHARA SINHA ASSESSEE BY: SHRI T.S. AJAY DATE OF HEARING; 09.12.2011 DATE OF PRONOUNCEMENT: 25.01.2012 O R D E R PER BENCH: THESE APPEALS BY REVENUE AS WELL AS BY THE ASSESSE E ARE DIRECTED AGAINST THE DIFFERENT ORDERS OF THE CIT(A) -V, HYDERABAD FOR THE ABOVE ASSESSMENT YEARS. SINCE THE ISSUE IN VOLVED IN ALL ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 2 THESE APPEALS IS COMMON IN NATURE, THESE ARE CLUBBE D TOGETHER, HEARD TOGETHER AND DISPOSED BY THIS COMMO N ORDER FOR THE SAKE OF CONVENIENCE. FIRST WE WILL TAKE U P THE REVENUE APPEALS. 2. THE COMMON GROUNDS IN THESE REVENUE APPEALS ARE THA T THE CIT(A) IS NOT CORRECT IN HOLDING THAT THE ASSES SEE IS ELIGIBLE FOR DEDUCTION U/S 80IA IN RESPECT OF PROFITS DERIVE D FROM KAKINADA PORT, JAM NAGAR PORT AND DAHEJ PORT THOUGH THE ASSESSEE DID NOT ENTER INTO AN AGREEMENT FOR OPERAT ION AND MAINTENANCE OF INFRASTRUCTURE FACILITY WITH THE CEN TRAL GOVT/STATE GOVT./LOCAL AUTHORITY OR STATUTORY AUTHO RITY. 3. THE ASSESSING OFFICER DISALLOWED THE CLAIM U/S 80IA ON THE REASON THAT THE BUSINESS OF THE ASSESSEE WAS CO NDUCTED IN THE CAPACITY OF A CONTRACTOR. THE ASSESSEE HAD NOT ENTERED INTO AGREEMENT WITH THE AUTHORITIES SPECIFIED IN SECTION 80IA(4)(I)(B), THAT THE PROVISO TO 80IA DO NOT APPLY TO THE ASSESS EE AND THE ASSESSEE HAS EXECUTED ONLY PART OF THE O & M OF THE PORT. HOWEVER, ON APPEAL THE CIT(A) RELIED ON THE ORDER O F THE TRIBUNAL DATED 25.11.2005 IN ASSESSEES OWN CASE FO R THE ASSESSMENT YEARS 2000-01 AND 2001-02 IN ITA NO. 104 9 & 1050/HYD/2003 AND ALLOWED THE CLAIM OF THE ASSESSEE . FURTHER, HE ALLOWED RELIEF FOR THE INCOME PERTAININ G TO THE DAHEJ PORT AND JAM NAGAR PORT, BRINGING THE FACTS O N PAR WITH THE FACTS PERTAIN TO KAKINADA & JAM NAGAR PORTS. AGAINST THIS THE REVENUE IS APPEAL BEFORE US. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE ISSUE IS NOT AT ALL COVERED BY THE ORDER OF THE TRIBUNAL IN ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 3 FAVOUR OF THE ASSESSEE BY THE ORDER CITED SUPRA. HE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 5. ON THE OTHER HAND THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE RELIED ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA AND SUB MITTED THAT THE AMENDMENT TO SECTION 80IA BY THE FINANCE A CT 2007 OR 2009 HAS NO APPLICATION. ACCORDING TO LEARNED A R, THE DECISION DELIVERED BY THE SPECIAL BENCH IN THE CASE OF B.P. PATIL VS. ACIT (1 ITR 703) (TRIBUNAL) HAS NO RELEVANCE TO THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT THE SPECIAL BE NCH REFERRED ITS DECISION IN THE CASE OF A DEVELOPER; I T APPLIES ONLY TO A DEVELOPER AND NOT TO AN O & M OPERATOR AS IN THE CASE OF THE ASSESSEE. HE SUBMITTED THAT THE SECTION NOWHERE SP ECIFIED THE ENTIRE O & M SHOULD BE CARRIED ON BY ONE PERSON, MU LTIPLE PERSONS CAN ALSO CARRY ON O & M ACTIVITIES. ACCORD ING TO THE LEARNED AR, EVEN PART OF ACTIVITIES OF O & M IS ENT ITLED FOR BENEFIT OF DEDUCTION U/S. 80IA AS PER THE JUDGEMENT OF IN THE CASE OF CIT VS. ABG HEAVY INDUSTRIES LTD. (322 ITR 323) (BOM). 6. REGARDING NON-SIGNING OF THE CONTRACT WITH SPECIFIE D PERSONS, HE SUBMITTED THAT THIS IS NOT THE ISSUE. THIS WAS ALREADY DECIDED BY THE TRIBUNAL IN ASSESSEES OWN C ASE. ACCORDING TO AUTHORISED REPRESENTATIVE THE SPECIAL BENCH HAS NOT GONE THROUGH THE PROVISION OF SECTION 80IA AND HAS ONLY MADE PASSING REFERENCE ON THE ISSUE. FINALLY, HE RE LIED ON THE ORDER OF THE CIT(A) AND ORDER OF TRIBUNAL FOR EARLI ER YEARS. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE EARLIER ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 4 ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE C ITED SUPRA. IT WAS HELD BY THE TRIBUNAL IN THAT ORDER THAT: 1. IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD HAVE UNDERTAKEN THE ENTIRE O & M BY THE PORT INFRASTRUCT URE AND 2. AN AGREEMENT WITH THE AUTHORITY SPECIFIED IN SECTIO N 80IA (4)(I)(B) IS NOT MANDATORY IN VIEW OF THE PROV ISIONS OF SECTION 80IA(4). 8. THIS IS CLEAR FROM PARA 13 AT PAGE 18 OF ITS TRIBUN AL ORDER CITED SUPRA WHEREIN IT WAS HELD AS FOLLOWS: ALL THOUGH THE ASSESSEE MAY NOT HAVE UNDERTAKEN THE ENTIRE OPERATION AND MAINTAINS OF THE PORT INFRASTRUCTURE, THE SERVICES RENDERED BY IT IS AN INTEGRAL AND INSEPARABLE PART OF OPERATION AND MAINTENANCE OF THE PORT INFRASTRUCTURE. 9. THE AUTHORISED REPRESENTATIVE OF ASSESSEE RELIED O N THE JUDGEMENT IN THE CASE OF CIT VS. ABG INDUSTRIES LTD . 322 ITR 323 FOR THE PROPOSITION THAT THE BENEFIT U/S 80IA I S AVAILABLE FOR O & M FOR EVEN A PART OF THE PROJECT. IN THE CASE BEFORE THE BOMBAY HIGH COURT THAT THE ASSESSEE HAD BEEN GIVEN THE CONTRACT FOR SUPPLY, INSTALLATION, MAINTENANCE ETC . OF THE CRANES AT THE PORT. THE HIGH COURT HELD THAT THE S TRUCTURES AT THE PORTS ARE FOR STORAGE, LOADING AND UNLOADING ET C. WOULD QUALIFY AS AN INFRASTRUCTURAL FACILITY IN TERMS OF BOARD CIRCULARS. IN THIS CASE, THE COURT HAS SUGGESTED T HAT THE DEDUCTION IS AVAILABLE FOR ACTIVITIES UNDERTAKEN EV EN PART OF A FACILITY. FURTHER, THE LEARNED AUTHORISED REPRESEN TATIVE FOR THE ASSESSEE MADE AN ARGUMENT THAT IN TRIBUNAL IN ASS ESSEES OWN CASE HELD THE REQUIREMENT OF SECTION 80IA(4)(1) (B) IS WAIVED BY THE PROVISO TO SECTION 80IA. THIS INTERPRETAT ION HAS ALSO ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 5 BEEN ENDORSED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ABG INDUSTRIES LTD. (322 ITR 323) AT PAGE 330 : 'BY THE FINANCE ACT 2001 THE WORD OR CAME TO BE INTRODUCED AFTER THE WORD DEVELOPING, TO CLARIFY IN EFFECT THAT THE AGREEMENT BETWEEN THE ENTERPRISE AND THE AUTHORITY OF THE CENTRAL OR STATE GOVT. OR, AS THE CASE MAY BE A LOCAL AUTHORITY OR A STATUTORY BODY MAY PROVIDE FOR I) DEVELOPING OR II) MAINTAINING AND OPERATING OR III) DEVELOPING, MAINTAINING AND OPERATING A NEW INFRASTRUCTURE FACILITY.' 10. WITH THESE OBSERVATIONS, THE COURT HAS CLARIFIED T HAT THE CLAIM OF THE ASSESSEE EVEN FOR O & M SHOULD BE ENTE RED INTO WITH SPECIFIED AUTHORITIES, REGARDLESS OF THE PROVI SO TO SECTION 80IA. 11. FURTHER, AT PARA 5, IT WAS OBSERVED BY THE TRIBUNAL IN ASSESSEES OWN CASE WHICH READS AS FOLLOWS: '5. ON THE ABOVE FACTS IT WAS EXPLAINED BY THE ASS ESSEE TO THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAD ENTERED INTO AGREEMENTS FOR OPERATION AND MAINTENAN CE OF INFRASTRUCTURE FACILITIES VIZ., PORTS WITH THE D EVELOPERS THEREOF, WHO IN TURN HAD ENTERED INTO AGREEMENTS WI TH SPECIFIED AUTHORITIES FOR THE PURPOSE OF DEVELOPMEN T, OPERATION AND MAINTENANCE OF THESE PORTS. FURTHER, THESE PORTS WERE REQUIRED TO BE TRANSFERRED OR HAND ED OVER TO THE SPECIFIED AUTHORITIES AFTER THE EXPIRY OF THE PERIOD STIPULATED IN THE AGREEMENTS WITH THE RESPEC TIVE AUTHORITIES. THE COUNTER PARTIES TO THE AGREEMENTS HAVE ALSO CONFIRMED THAT THE SERVICES RENDERED BY THE ASSESSEE COMPANY ARE ESSENTIAL PART OF THE OPERATIO N AND MAINTENANCE OF THE PORT FACILITIES. FURTHER, U NDER THE ORIGINAL AGREEMENT BETWEEN THE SPECIFIED AUTHOR ITIES AND THE DEVELOPERS OF THE PORT, THE DEVELOPERS HAD THE POWER TO SUB CONTRACT THE OPERATION AND MAINTENANCE OF ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 6 THE PORT INFRASTRUCTURE AS AND WHERE NECESSARY. ACCORDINGLY, THE OPERATION AND MAINTENANCE SERVICES WERE SUB CONTRACTED TO THE ASSESSEE COMPANY IN ACCORDANCE WITH THE ORIGINAL AGREEMENT WITH THE SPECIFIED AUTHORITIES. AS SUCH, THE ASSESSEE COMPA NYS CASE BEING FULLY COVERED BY THE PROVISO TO SECTION 80IA(4)(I), IT IS RIGHTEOUSLY ENTITLED TO DEDUCTION U/S 80IA OF THE ACT.' 11.1 IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL, WE A RE OF THE OPINION THAT FOR THESE ASSESSMENT YEARS ALSO TH E ASSESSEE CLAIM U/S. 80IA HAS TO BE ALLOWED ON THE SAME REASO NS. 12. WITH REGARD TO THE DEDUCTION CLAIMED IN RESPECT OF DHEJ PORT, THE TRIBUNAL IN ITS ORDER DATED 25.11.2005 H AD HELD THE CASE FELL OUTSIDE THE PURVIEW OF THE PROVISIONS OF SECTION 80IA (4) SINCE O & M OF THE INFRASTRUCTURE FACILITY HAD COMMENCED PRIOR TO 1.4.1999. HOWEVER, THE TRIBUNAL ALLOWED T HE CLAIM OF THE ASSESSEE TO BE CONSIDERED U/S 33AC AND SET ASID E THE MATTER TO THE FILE OF ASSESSING OFFICER. BEFORE US THE LEARNED AR SUBMITTED THAT THE CLAIM FOR THE PRESENT YEAR IS BA SED ON A NEW CONTRACT, SINCE IT HAS BEEN ENTERED AFTER 1.4.1999, WHICH ENTITLES THE ASSESSEE TO BE CONSIDERED UNDER THE PR OVISO AS HAD BEEN DONE FOR OTHER TWO PORTS CONSIDERED BY THE TRI BUNAL. IF THE ASSESSEE ENTERED INTO NEW AGREEMENT IN RESPECT OF DHEJ PORT AND ON PAR WITH THE OTHER TWO PORTS, THE CLAIM OF THE ASSESSEE U/S. 80IA INSTEAD OF U/S. 33AC HAS TO BE A LLOWED AS HELD BY THE TRIBUNAL ON EARLIER OCCASION. 13. FURTHER THE DEDUCTION U/S. 80IA ALREADY GRANTED TO THE ASSESSEE FOR THE EARLIER ASSESSMENT YEARS AS DECIDE D BY THE TRIBUNAL BY THE ORDER CITED ABOVE, BEING SO, WE ARE NOT IN A POSITION TO TAKE ANY CONTRARY VIEW IN THIS MATTER I N VIEW OF THE ORDER OF THE TRIBUNAL IN THE CASE OF MICRO INSTRUME NTS CO. LTD. VS. ITO (2008) 12 DTR (CHD) 501 WHEREIN IT WAS HELD THAT THE ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 7 ASSESSEE'S CLAIM FOR DEDUCTION U/S. 80IB HAS BEEN A LLOWED IN THE INITIAL ASSESSMENT YEAR AND ALSO THEREAFTER, CL AIM FOR SUCH DEDUCTION CANNOT BE DENIED FOR SUBSEQUENT YEARS WIT HOUT ANY JUSTIFICATION. THE RELEVANT OBSERVATIONS OF THIS T RIBUNAL ARE EXTRACTED HEREUNDER: THE ASSESSEE INITIALLY CLAIMED DEDUCTION UNDER S. 80IB FOR THE IMPUGNED UNIT IN THE ASST. YR. 2001-02 AND THE SAME WAS ALLOWED. IN THIS ASSESSMENT YEAR, I.E., 2003-04 THE CLAIM OF THE ASSESSEE WAS I N CONTINUATION OF THE CLAIMS MADE IN THE EARLIER ASSESSMENT YEARS FOR THE IMPUGNED ASSESSMENT YEAR FALLS WITHIN THE NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THE SECTION IN WHICH THE CLAIM IS ELIGIBLE. IT IS ALSO A PERTINENT FACT POSITION THA T THE CLAIM ALLOWED TO THE ASSESSEE IN THE INITIAL ASSESSMENT YEAR OF 2001-02 AND THEREAFTER IN THE ASST. YR. 2002-03HAS NOT BEEN WITHDRAWN. THERE IS NO CONTRAVENTION FROM THE REVENUE EITHER AT THE STAGE OF THE PROCEEDINGS BEFORE THE LOWER AUTHORITI ES OR EVEN BEFORE THE TRIBUNAL. THUS, FACTUALLY SPEAKING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S. 80IB STANDS ADMITTE4D IN THE INITIAL ASSESSMENT YEAR AND ALSO THEREAFTER UP TO THE ASSESSMENT YEAR PRIOR TO THE YEAR UNDER CONSIDERATION. ON THE FACTUAL MATRIX, THERE IS NO JUSTIFICATION FOR THE AO TO DENY THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S. 80IB. THE IMPLICATION OF THE EARLIER ASSESSMENT MADE FOR THE INITIAL ASSESSMENT YEAR UNDER S. 143(3) IS THAT THE ASSESSEE HAS FULFILLED THE CONDITIONS PRESCRIBED IN THE SAID SECTION. THEREAFTER, IT IS NOT OPEN FOR T HE AO TO RE-EXAMINE THE ISSUE ALL OVER AGAIN AND COME TO A DIFFERENT CONCLUSION IN A SUBSEQUENT YEAR WITHOUT JUSTIFYING SUCH DEPARTURE. IN THE ASSESSMENT ORDER, THERE IS NO DISCUSSION BY THE ASSESSING OFFICER ON THIS ASPECT IN SPITE OF THE FA CT THAT THE ASSESSEE HAD TAKEN A SPECIFIC POSITION BASED ON THE RELIEF ALLOWED IN THE PAST. FURTHER, THE CLAIM ACCEPTED BY THE AO IN THE ASST. YR. 2001-02 AND THEREAFTER IN 2002-03 HAS NOT BEEN DISTURBED. CLEARLY, IN A SUCH A SITUATION, THE ONUS WHICH WAS ON THE REVENUE HAS NOT BEEN DISCHARGED. INSOFAR AS THE JUSTIFICATION FOR THE CLAIMS OF EXEMPTION/TA X RELIEFS ARE CONCERNED THE ONUS IS ON THE ASSESSEE T O ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 8 ESTABLISH AND JUSTIFY THE CLAIMS. SO, HOWEVER, IN A SITUATION LIKE THE PRESENT SITUATION, THE AO OUGHT TO HAVE JUSTIFIED THIS DEPARTURE FROM THE EARLIER ACCEPTED POSITION WHEREBY SIMILAR CLAIM HAS BEEN ACCEPTED IN THE PAST. IT IS IN THE BACKGROUND THE ONUS WAS ON THE AO TO JUSTIFY THE DENIAL OF DEDUCTION UNDER S. 80IB IN VIEW OF THE PAST HISTORY . THEREFORE, IN THIS BACKGROUND THERE IS NO JUSTIFICATION TO UPHOLD THE STAND OF THE IT AUTHORI TIES TO DENY THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S. 80IB IN RELATION TO THE PROFITS AND GAINS. SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT (1979) 11 CTR (GUJ) 139; (1980) 123 ITR 669 (GUJ) AND CIT VS. PAUL BROTHERS (1995) 216 ITR 548 (BOM) RELIED ON. 14. IN VIEW OF THE ABOVE DISCUSSION, WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) ON THE ISSUE RELATI NG TO DEDUCTION U/S. 80-IA AND ACCORDINGLY DISMISS THE RE VENUE APPEALS. 15. IN THE RESULT, REVENUE APPEALS IN I.T.A. NO. 523, 8 99 & 1336/HYD/2010 ARE DISMISSED. 16. NOW WE WILL TAKE UP THE ASSESSEE'S APPEAL IN I.T.A. NO. 1457/HYD/2010. THE GRIEVANCE OF THE ASSESSEE HEREI N IS WITH REGARD TO ADDITION OF RS. 33,55,204 U/S. 115VT OF T HE INCOME- TAX ACT, 1961. 17. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF CARGO HANDLING AND O & M OPERATIONS AT PORTS, AS A CONTRACTOR. FOR THE A.Y. 2005-06 THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME ON 28.1 0.2005 ADMITTING TOTAL INCOME OF RS. 2,67,12,607 AFTER CLA IMING DEDUCTION U/S. 80IA OF THE ACT. ASSESSMENT U/S. 14 3(3) OF THE ACT WAS COMPLETED ON 28.12.2007 DETERMINING THE TAX ABLE INCOME OF THE ASSESSEE-COMPANY AT RS. 5,54,26,805 U NDER ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 9 NORMAL PROVISIONS. THEREAFTER, THE ASSESSING OFFIC ER REOPENED THE ASSESSMENT AND COMPLETED THE ASSESSMENT U/S. 14 3(3) R.W.S. 147 OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 5,87,52,009. FURTHER THE ASSESSIN G OFFICER APPLIED THE PROVISIONS OF SUB-SECTION (5) OF SECTIO N 115VT READ WITH EXPLANATION TO SUB-SECTION (1) OF SECTION 115V T AND OBSERVED THAT IN THE ORIGINAL ASSESSMENT THE NET PR OFIT OF THE TONNAGE TAX DIVISION WAS RS. 7,22,74,369. THIS WAS ARRIVED AT AFTER REDUCING THE EXPENSES WHICH ARE NOT ALLOWA BLE I.E., DONATIONS AT RS. 6,97,828 AND UNRELATED PRIOR PERIO D EXPENSES OF RS. 46,71,143 TOTALLING TO RS. 53,68,972 AND DIS ALLOWED THE SAME AND BROUGHT TO TAX THE INCOME OF RS. 53,68,972 AS TONNAGE INCOME. ON REOPENING ASSESSMENT THE ASSESS ING OFFICER CONSIDERED THE DISALLOWANCE OF RS. 53,68,97 2 AS THIS IS NOT RELATED TO TONNAGE INCOME IN TURN INCREASED THE TONNAGE TO RS. 7,76,43,341 AND COMPUTED THE BOOK PROFIT AT RS. 7,76,43,341 AND ACCORDING TO THE ASSESSING OFFICER TONNAGE TAX RESERVE ACCOUNT HAS TO BE CREATED AT RS.1,55,28 ,268 AS THE ASSESSEE COMPANY CREATED ONLY RS. 1,48,65,622 T O TONNAGE TAX RESERVE ACCOUNT, THE PROVISIONS OF SUB-SECTION (5) OF SECTION 115VT ARE ATTRACTED AND HE COMPUTED THE SHO RTFALL AS FOLLOWS: TONNAGE BOOK PROFIT RS. 7,76,43,341 TONNAGE TAX RESERVE TO BE CREATED (20% OF THE ABOVE) 1,55,28,668 LESS: CREDITED TO RESERVE BY THE ASSESSEE 1,48,65,6 22 SHORT FALL 6,63,046 PROPORTIONATE AMOUNT = 1,55,28,668 : 6,63,046 :: 7, 76,43,341 : X X = 33,15,204 THE PROPORTIONATE AMOUNT OF RS. 33,15,204 IS NOW BR OUGHT TO TAX. THE TOTAL INCOME OF THE ASSESSEE IS COMPUTED AS UND ER: INCOME INCREASED AS PER ORDER U/S. 143(3) DT. 28.12.2007 (NORMAL PROVISIONS) RS. 5,54,26,805 ADD: AS DISCUSSED ABOVE. RS. 33,15,204 TOTAL INCOME ASSESSED RS. 5,87,52,009 ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 10 18. ACCORDINGLY, THE ASSESSING OFFICER BROUGHT THE PROPORTIONATE AMOUNT OF RS. 33,15,204 TO TAX. AGAI NST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER. AGGRIEV ED, THE ASSESSEE IS IN APPEAL BEFORE US. 19. THE LEARNED AR SUBMITTED THAT A) THE CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 33,15,204 AS INCOME U/S. 115VT(5) BY ADOPTING THE BOOK PROFIT OF THE TONNAGE B) THE CIT(A) FAILED TO APPRECIATE AND COMPLETELY IGNO RED THE SUBMISSION OF THE ASSESSEE THAT FOR THE PURPOSE OF SECTION 115VT THE TERM BOOK PROFIT SHALL HAVE THE SAME MEANING AD DEFINED U/S. 115JB AND CONSEQUENTLY THE BOOK PROFIT AS PER THE AUDITED FINANCIAL STATEMENTS ALONE HAS TO BE ADOPTED. THE CIT(A) HAS COMPLETELY ERRED IN ADOPTING THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT AS THE BASIS FOR COMPUTATION OF THE RESERVE U/S . 115VT, WHEREAS AS PER THE EXPRESS PROVISIONS OF THE SECTION 115VT SUCH RESERVE SHOULD BE COMPUTED ONLY ON THE BASIS OF THE AUDITED FINANCIAL STATEMENTS. C) THE CIT(A) ERRED IN APPRECIATING THE CONTENTIONS OF THE ASSESSEE AND HOLDING THAT SECTION 115JB HAS NOT BEEN APPLIED AS THE TAX PAYABLE UNDER THE NORMAL PROVISIONS IS HIGHER THAN THE MAT. THE CIT(A) OUGH T TO HAVE NOTED THAT IT WAS NEVER THE CONTENTION OF T HE ASSESSEE THAT SECTION 115JB HAS TO BE APPLIED AND O N THE CONTRARY THE ONLY CONTENTION OF THE ASSESSEE WA S THAT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115 VT ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 11 IS THE SAME AS DEFINED U/S. 115JB AND THE PRINCIPLE S OF BOOK PROFIT U/S. 115JB HAD TO BE FOLLOWED. D) THE CIT(A) HAS COMPLETELY ERRED IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN OBSERVING TH AT THE DISALLOWABLE EXPENSES UNDER THE NORMAL PROVISIONS OF THE ACT WOULD GO TO INCREASE THE BOOK PROFIT, WHICH IS AGAINST THE EXPRESS PROVISIONS OF THE ACT, PRECEDENT CASE LAWS AND THE ACCEPTED CANONS OF THE CONCEPT OF TAX ON BOOK PROFIT. 20. ON THE OTHER HAND, THE DR SUBMITTED THAT THE ASSESS ING OFFICER IS JUSTIFIED IN REMOVING THE UNRELATED EXPE NSES I.E., DONATION AT RS. 6,97,828 AND PRIOR PERIOD EXPENSES OF RS. 46,71,143 AND RECOMPUTED THE BOOK PROFIT BY APPLYIN G THE PROVISIONS OF SECTION 115VT AND THEREBY WORKED OUT THE AMOUNT TO BE CREDITED TO THE TONNAGE TAX RESERVE AC COUNT, WHICH RESULTED IN ADDITION OF RS. 33,15,204 AND WHI CH IS TO BE CONFIRMED. ACCORDINGLY, HE RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE PROV ISIONS OF SECTION 115VT WITH REFERENCE TO TRANSFER OF PROFIT TO TONNAGE TAX RESERVE ACCOUNT. RELEVANT EXTRACTION OF SECTIO N 115(VT)(1) AND SECTION 115VT(5) ARE AS FOLLOWS: TRANSFER OF PROFITS TO TONNAGE TAX RESERVE ACCOUNT . (1) A TONNAGE TAX COMPANY SHALL, SUBJECT TO AND IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION, BE REQUIRED TO CREDIT TO A RESERVE ACCOUNT (HEREAFTER IN THIS SECTION REFERRED TO AS THE TONNAGE TAX RESERVE ACCOUNT) AN AMOUNT NOT LESS THA N TWENTY PER CENT OF THE BOOK PROFIT DERIVED FROM THE ACTIVITIES REFERRED TO IN CLAUSES (I) AND (II) OF SUB-SECTION (1) OF SECTION 115V-I IN EACH PREVIOUS YEAR TO BE UTILISED IN THE MANNER LAID DOWN IN SUB-SECTION (3): ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 12 PROVIDED THAT A TONNAGE TAX COMPANY MAY TRANSFER A SUM IN EXCESS OF TWENTY PER CENT OF THE BOOK PROFIT AND SU CH EXCESS SUM TRANSFERRED SHALL ALSO BE UTILISED IN THE MANNE R LAID DOWN IN SUB-SECTION (3). EXPLANATION : FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' SHALL HAVE THE SAME MEANING AS IN THE EXPLANATION T O SUB- SECTION (2) OF SECTION 115JB SO FAR AS IT RELATES T O THE INCOME DERIVED FROM THE ACTIVITIES REFERRED TO IN CLAUSES (I) AND (II) OF SUB-SECTION (1) OF SECTION 115V-I. . (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS CHAPTER, WHERE THE AMOUNT CREDITED TO THE T ONNAGE TAX RESERVE ACCOUNT IN ACCORDANCE WITH SUB-SECTION (1) IS LESS THAN THE MINIMUM AMOUNT REQUIRED TO BE CREDITED UND ER SUB- SECTION (1), AN AMOUNT WHICH BEARS THE SAME PROPORT ION TO THE TOTAL RELEVANT SHIPPING INCOME, AS THE SHORTFALL IN CREDIT TO THE RESERVES BEARS TO THE MINIMUM RESERVE REQUIRED TO B E CREDITED UNDER SUB-SECTION (1) SHALL NOT BE TAXABLE UNDER TH E TONNAGE TAX SCHEME AND SHALL BE TAXABLE UNDER THE OTHER PRO VISIONS OF THIS ACT. 22. WHEN WE READ SECTION 115VT(5) ALONG WITH SECTION 115VT(1) IT IS NEEDLESS TO SAY THAT EXPLANATION TO SUBSECTION (1) IS APPLICABLE. BEING SO, BOOK PROFIT IS TO BE COMPUTED WHILE APPLYING SUBSECTION (5) OF SECTION 115VT AS ENUMERA TED U/S. 115JB AND THE EXPLANATION TO SUBSECTION (2) OF SECT ION 115JB IS ALSO APPLICABLE. BEING SO, THE BOOK PROFIT HAS TO COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB OF THE ACT. WHEN WE COMPUTE THE BOOK PROFIT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB OF THE ACT, THE ASSESSE E IS REQUIRED TO CREDIT THE TONNAGE TAX RESERVE ACCOUNT AS PER BO OK PROFIT SHOWN IN THE AUDITED P & L ACCOUNT AND BALANCE SHEE T. THERE IS NO DISPUTE IN THIS CASE THAT AUDITED P & L ACCOU NT SHOWS THE BOOK PROFIT AT RS. 7,22,74,369. IF THERE IS NO DISPUTE REGARDING THIS PROFIT SHOWN IN THE AUDITED P & L AC COUNT AND BALANCE SHEET, THE ASSESSING OFFICER IS PRECLUDED F ROM TINKERING THE SAME. EXPLANATION (1) TO SUBSECTION (2) OF SECTION 115JB ALSO DOES NOT PROVIDE FOR INCREASE OF THE PRO FIT SHOWN IN THE P & L ACCOUNT BY AN AMOUNT LIKE DONATION OR PRI OR PERIOD ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 13 ITEMS WHICH IS SAID TO BE ADDED BY THE LOWER AUTHOR ITIES. WE DO NOT FIND THESE TWO ELEMENTS I.E., DONATION AND P RIOR PERIOD ITEMS IN THE EXPLANATION 1 TO SUBSECTION (2) OF SEC TION 115JB OF THE ACT. BEING SO, IN OUR OPINION, THE ASSESSIN G OFFICER CANNOT ADD THESE TWO ITEMS TO THE BOOK PROFIT FOR T HE PURPOSE OF DETERMINING THE TRANSFER OF PROFIT TO TONNAGE TA X RESERVE ACCOUNT. WE ALSO PLACE RELIANCE ON THE JUDGEMENT O F SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (255 ITR 273) WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF BOOK P ROFIT THE NET PROFIT AS PER THE AUDITED P & L ACCOUNT PREPARED BY THE ASSESSEE AND CERTIFIED BY THE STATUTORY AUDITORS OF THE COMPANY AS HAVING BEEN PREPARED IN ACCORDANCE WITH THE REQU IREMENT OF PART II AND III OF SCHEDULE VI OF COMPANIES ACT CAN NOT BE EXAMINED BY THE ASSESSING OFFICER. THE ASSESSING O FFICER DOES NOT HAVE THE JURISDICTION TO GO BEYOND THE NET PROF IT SHOWN IN THE P & L ACCOUNT EXCEPT PROVIDED IN THE EXPLANATIO N TO SECTION 115J OF THE ACT. 23. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE INCLINE D TO ALLOW THE APPEAL OF THE ASSESSEE. 24. IN THE RESULT, ALL THE THREE APPEALS OF THE REVENUE ARE DISMISSED AND ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2012 SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (H.S. SIDHU) JUDICIAL MEMBER HYDERABAD, DATED 25 TH JANUARY, 2012 ITA NOS. 523, 899, 1336 & 1457/HYD/2010 M/S OCEAN SPARKLES LTD. ========================== 14 COPY FORWARDED TO: 1. THE DCIT, CIRCLE - 16(3), 6 TH FLOOR, A A YAKAR BHAVAN, BASHEERBAGH, HYDERABAD 2. M/S . OCEAN SPARKLES LTD., 128, SRINAGAR COLONY, HYDERABAD 3. THE ACIT, CIRCLE - 16(3), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 4. 5. CIT(A) - V , HYDERABAD CIT-IV, HYDERABAD 6 . THE DR, B - BENCH, ITAT, HYDERABAD. TPRAO